Forget the thought of prices rising again this summer. If the world’s oil market continues to churn out more barrels each day than consumption is showing, gasoline could in fact see some of its lowest prices ever in Washington as early as late summer. And all for not a whole lot of extra oil gushing from Middle East wells.
The International Energy Agency’s Director General, Maria van der Hoeven, explained this new outlook today during a Washington press conference. In her remarks, she was quite clear about who’s responsible for the healthy situation.
First, van der Hoeven listed the oil giants in the region and two new ones for the future: U.S. and Kurdish producers, which have amassed considerable reserves. Indeed, van der Hoeven says there is no such thing as oil glut in Iraq or the Middle East. That means ample supplies can be bought and sold on global markets.
Meanwhile, van der Hoeven said the “North American shale revolution” is boosting the world’s oil supply, and she estimates it will increase this year by up to 600,000 barrels a day—more than enough to offset the 200,000-250,000 barrels extra per day brought on by refinery outages and the closure of an OPEC-run facility in Libya.
More than 850,000 additional barrels are being produced from U.S. tight oil fields, and industry analysts expect U.S. production to go over 9 million barrels a day by the middle of this year. And that’s after a sharp decline in oil output in the first quarter.
Van der Hoeven also cited a decision by the Organization of the Petroleum Exporting Countries, in January, to cut its production to 30 million barrels a day—the same level that it had been pumping in the last decade. And she noted that this production cut has also helped “rein in Brent and WTI” (the European benchmark and the U.S. oil marker), which are now trading above $70 a barrel in London and New York.
As for prices, van der Hoeven said there were still some 800,000 barrels in Saudi Arabia, Iran and Libya still, which could contribute to higher prices in the short term. But she added that most of the “hoarding” of oil during the economic crisis was gone, and added that the current bottom is “just a stepping stone to a new equilibrium” of prices between $60 and $70 a barrel.
The IEA said these improvements in supply and demand are also likely to be partly reflected in the U.S. economic recovery in 2013.
Van der Hoeven emphasized that it’s not just about oil prices this year. She also hinted that a better energy policy in the United States will lead to more efficiency, which should boost a number of car models and electricity use.
“It’s on the agenda, it’s on the agenda,” she said of stronger energy policy in the United States. “I’ve always said that my wish would be that it’s on the agenda to the very end, not years from now.”
Overall, she said: “I think there is a very good, light in the horizon.”